Tip Deductions

[SCswede]

My grandson works as a tax preparer in a Deli/restaurant and gets paid a hourly wage plus a "promised tip" fixed amount per hour worked. All tips both cash and credit card from customers are collected by the owner.

His hourly wage and promised tip amounts are shown separately on his paystub and both are included in his W-2 as earnings which is taxed for both FICA and Medicare purposes. Does this tip earnings qualify as a reduction to earnings on his tax return per the OBBB? Thanks.

[Opus 17]

Probably Not.  Tips must be voluntary by the customer.  For example, if a restaurant charges an automatic tip on large groups, those automatic tips are not deductible even though tips on smaller groups would be deductible. 

If your grandson works in the back of the house and gets a tip share based on customer voluntary tips, that would be deductible, as would any cash tips handed to him directly by customers (but only if he first reported them to his employer so they would be on his W-2, or he self-reports them on form 4137).

It's not entirely clear if this is really a tip or just a wage under another name, but it does not sound like a voluntary tip as described in the law and regulations.